RebelCapitalist: Financial Information for the Rest of Us | Are You Ready for the ‘New Normal’?

Are You Ready for the ‘New Normal’?

Aug 05, 2009 | By: Mr_Blue | Tags: unemployment, new normal, emergency savings

The ‘New Normal’ for economic growth. Mohamed El-Erian, CEO of Pacific Investment Management Co. (PIMCO), coined the phrase when he predicted that the 5% annual growth in Gross Domestic Product (GDP) will be a thing of the past. He predicted future economic growth - in GDP - will be more like 1% to 2% annually. This is a serious problem if true. Are you ready for it?

While I agree with his prediction. I disagree with his reasoning for this ‘New Normal’ in economic growth. Dr. El-Erian reasons that De-leveraging (agreed), De-globalization (not a chance) and Re-regulation (give me a break) will cause this ‘New Normal’ for economic growth. What Dr. El-Erian so conveniently ignores is the stagnation in wage growth!

What does this ‘New Normal’ mean? If true, this will mean higher permanent unemployment for our country. Instead of 4% unemployment the normal may be 8% and that is significant. Economic growth at 1% to 2% will be not be enough to generate jobs for people.

Are you prepared if this ‘New Normal’ happens?

1) If you are employed, stay employed - do what you can (without being treacherous) to give your employer a reason to keep you.

2) Make sure our emergency savings funds are enough to cover potentially longer stretches of unemployment - this means making sure we have at least 12 months of living expenses in the bank.

3) If you are unemployed, consider re-training or acquire new skills to make yourself more marketable in the job market.

4) Call your elected officials in Washington D.C and tell them that you want health care reform now because with higher unemployment people will need that safety net of health care coverage.

Good luck.